---

Address in Reply to Her Majesty's Most Gracious Speech

My Lords, I join my noble friend Lady Noakes and others in congratulating the noble Lord, Lord McKenzie, on his ministerial appointment and promotion to the Front Bench. I am somewhat relieved, as it means that it is now rather unlikely that he will often speak immediately after me, as he seemed to do as a rule during the previous Parliament. However, I worry that it means that he will often have the last word. He does not have it today, but he will sometimes have both the first and the last words. Like my noble friend Lady Noakes and others, I believe that the Minister gave too much credit to the Government's economic management. He mentioned that the United Kingdom economy had grown faster and for longer than any other G7 economy but not that, of the 51 consecutive quarters of growth, the first third were under Conservative governments. He is a chartered accountant and a master of figures, so he must know that the compound rate of growth under the Conservative period was 0.77 per cent a quarter, compared with only 0.69 per cent a quarter under the present Chancellor—despite constant and controversial adjustments over the years to the way in which the economy is measured, which have helped the Chancellor's record. As noble Lords are well aware, the Labour Government inherited a strong economy. The reforms introduced by the Conservative governments of the 1980s had halted the decline of UK productivity and GDP per capita relative to other advanced countries. By the time that this Government took office in 1997, government revenues were growing more rapidly than public expenditure, ensuring a healthy current account surplus. The Government's commitment not to exceed the previous Conservative administration's spending plans for two years ensured that the public finances continued to improve until 2000 but, in the past five years, the Government have thrown everything away. If the Chancellor does just meet his golden rule in the current economic cycle, it will be only because he has moved the goalposts—not once, but three times. The first was the reclassification of rail subsidies as grants in 2003. The second was the change adopted by the Treasury last year in the method of calculating budget balances from absolute amounts to percentages of GDP. The third was the timely reclassification in February this year of roads maintenance expenditure as capital expenditure. The Minister will no doubt claim that those three changes have nothing to do with the Chancellor's need to demonstrate adherence to his golden rule but, if that is so, the margin by which the rule is met should be much greater than the Treasury's forecasts show. It is right that we should give credit to the Chancellor for granting operational independence to the Bank of England; no one would now seriously disagree with that. However, he cannot have it both ways and also claim credit for the Government for the successful and stable management of monetary policy. Your Lordships will remember that, when we debated the previous gracious Speech in November last year, the noble Lord, Lord Davies of Oldham, was characteristically robust in his defence of the Chancellor's record as a competent manager of the economy. It would appear that the electorate of the United Kingdom on the whole believed him. According to the opinion polls, the economy was the area on which—more than any other—voters believed that the Government's performance would be better than that of a Conservative government. However, I am very confident that, before long, people will come to understand just how great is the damage that has been done to our economy through Labour's most recent two terms. My noble friend Lady O'Cathain rightly drew attention to the high levels of household debt. The Government have in the past expressed the view that those high levels were balanced by borrowers' growing confidence in the economy. But borrowing has increased as consumers have attempted to maintain their standards of living in the face of higher taxes and lower pensions. The recent collapse in spending indicates that there is no room for further increases in household debt and, consequently, households are now forced to cut their spending. The Governor of the Bank of England stated last week that prospects for consumer spending were a key source of uncertainty. I would like to hear from the Minister whether the Treasury maintains its forecast for GDP growth this year of between 3 and 3.5 per cent, or whether it will reduce it in line with the Bank's more cautious forecast of 2.5 per cent. As noble Lords are aware, the Government have done much to harm and little to help the savings culture in this country. Our pension system was the envy of the world in 1997. If you work in our expanded and bloated public sector, you are still likely to benefit from a generous, inflation-linked pension scheme based on final salary. The unfunded deficit of some £700 billion in public sector pension schemes will have to be paid for by the private sector, but the Government have increased the public sector so that fully 25 per cent of those in work are now employees of the state. No wonder the Prime Minister was so easily persuaded to abandon his plans to rebrand the DTI as the Department for Productivity, Energy and Industry. The most damaging single act of this Government in the economic sphere was the abolition of the dividend tax credit previously received by our pension funds and charities. It is often stated that that tax stole £5 billion a year but, over eight years, our pension funds have lost rather more than £40 billion. The cumulative effect has been to reduce the assets of our pension funds by £56.6 billion, after adding back the stolen tax credits and assuming that 50 per cent was annually reinvested in UK equities, yielding some 3.25 per cent per annum. That figure also is a huge understatement of the cost of the Government's pensions stealth tax raid. One can surely assume that, given the strong performance of the United Kingdom economy throughout the period, our stock market should have performed at least as well as the average performance of the American, German and French stock markets over the period. The principal reason that the UK stock market has underperformed those other three major markets by some 29 per cent is that pension and charity fund managers significantly reduced their weightings in UK equities after the pensions stealth tax raid. If the UK stock market had performed in line with the average of those three markets, our corporate pension fund assets would be worth an additional £110 billion, which must be added to the figure of £56.6 billion mentioned above, assuming that 50 per cent of the assets were invested in UK equities. It is therefore reasonable to assume that our occupational pension funds would today be worth £166 billion more than they are as a result of Gordon Brown's first and most damaging stealth tax raid. In the past two terms, the Chancellor has steadily expanded the public sector. For every job lost in the private sector, he has created a non-productive job in the state sector. I mention Marconi, MG Rover, Waterford Wedgwood and IBM to give your Lordships some recent examples. Some observers believe that jobs at MG Rover might have been saved if Shanghai Automotive Industry Corporation had not been faced with the obligation to pay down the substantial deficit in the MG Rover pension fund. Indeed, pension fund deficits are now one of the principal deterrents to acquisitions of companies as going concerns which might otherwise make good commercial sense. It was strange indeed that during the election campaign, the Government said very little about reform of the pension system. In fact, the Chancellor and Ed Balls both indicated that the introduction of any element of compulsory savings would have to wait until a fourth Labour term after it had been put to the electorate. Why did not the Government disclose what they must already have known; that Adair Turner would be recommending a system which strongly encouraged or compelled people to make some provision to link their pensions to their earnings? It was surely not entirely coincidental that Adair Turner came out with his preliminary recommendations immediately after the general election. The gracious Speech stated that the Government will continue to pursue economic policies which entrench stability and promote long-term growth and prosperity. But the Government's policies have reduced our long-term growth and prosperity by wasting the lion's share of the increased expenditure on public services. For example, expenditure on hospitals and community health services increased by 48 per cent, but hospital activity has increased by only 9 per cent. As Mr Stephen Timms MP told the conference on regeneration, in Philadelphia, people are going to say, "We've paid a lot of taxes, but what has really been achieved with all that money?". Precious little, my Lords. I believe it was to the Government's advantage that the issue of tax and the public finances was not central to the debate before the general election. But the taxpayer will soon be all too aware of the cost of paying for the fat government that new Labour has created—more than 850,000 public sector workers since 1997. The Institute for Fiscal Studies estimates that taxes will have to be raised by £11 billion a year in the next economic cycle, but which taxes? Like my noble friend Lady Noakes, I welcome some of the new measures announced by the Government, such as the decision to place home reversion plans within the FSA's regulatory jurisdiction, similar to the position of mortgage-based equity release schemes. I look forward to the contributions of other noble Lords and I hope that we will hear some answers from the noble Lord, Lord Sainsbury, to the many apposite questions raised in the debate; in particular how the Government intend to increase their revenues against the background of an economic slowdown.